Robo-signing is over. But robo-suing is growing.
Remember the term “robo-signing”? You know: what all the mortgage companies were doing a couple of years ago when they kicked people out of their homes without following the process of law. Did you know that robo-signing is still happening tens of thousands of times every day?
Most people don’t know. But it is true. This time, it involves buyers of credit-card debt who are robo-suing. Every day, about a dozen of these companies take this procedural shortcut by filing lawsuits to try to use the courts to force people into paying back the debt they've defaulted on. These suits have no true legal standing because they violate the most basic principle of the burden of legal proof. That's because the robo-signers, signing hundreds or thousands of documents a day, don't take the time to check whether the people they're suing really owe those debts. These credit-card debt buyers have done this about 40 million times since the financial crisis began in 2008. And they will do it again over and over – about 10 million times a year.
How did robo-suing start in the credit-card industry?
For the past 20 years the major banks who issue credit cards sell the accounts that are defaulted on. This makes perfect sense for the bank because it frees up time and resources that are better spent growing the bank. No bank wants to do business with third parties who trick and abuse consumers in the manner that this small group of corporate debt-buyers has done. Doing so reflects badly on the bank and creates financial risk. So, why did the banks go along with this plan? For the simple reason that they did not know about it.
The volume of these robo-signed lawsuits are so dispersed in the 15,000 county and small claims courts across the nation that it has been almost impossible to see the magnitude of what was happening. Those courts are so overburdened that court officials just don’t have the time, manpower, or energy to make it stop.
Consumer advocates, such as the Center for Consumer Recovery, began to notice in 2010. Along with other consumer advocates, the center has worked hard to bring the abuse to the attention of the Consumer Financial Protection Board (CFPB), the Office of the Comptroller of the Currency, and state attorneys general.
The situation is beginning to change quickly. Working independently but in a coordinated manner, three regulators have begun a push to end the practice of debt-buyer robo-signing. Tom Miller, attorney general of Iowa, Richard Cordray, director of the CFPB, and Thomas Curry, Comptroller of the Currency have each in the past weeks fired warning shots at that small group of corporate debt-buyers.
Attorney General Miller is putting together a consortium of other state attorneys general and is pursuing litigation. Messrs. Cordray and Curry have issued official public statements warning of dire consequences for harming a consumer.
This issue affects the lives of millions of Americans. “The wholesale transgressions of the debt collection industry presents the most significant consumer protection issue of the decade,” former Oklahoma Attorney General Drew Edmondson said at a National Association of Attorneys General meeting in July 2013. It's high time to reign in these bad practices.
– Bill Bartmann is CEO of CFS II, a debt-collection company in Tulsa, Okla., and has helped to settle the debts of more than 4.5 million people without ever filing suit against a customer.
